More Virgin Territory

Richard Branson is sending troops all over the region

The December launch of Australian airline Virgin Blue's new Melbourne-to-Perth service bore all the hallmarks of the airline's flamboyant chairman, British entrepreneur Richard Branson. When the Boeing 737 touched down at Perth Airport, company execs disembarked decked out as the campy 1970s disco group, the Village People. Then they belted out a rendition of the group's song Go West, ensuring plenty of free publicity in the local media for Virgin's first foray into the Western Australia market.

This clowning is part of a serious strategy for Branson, the former rock impresario who parlayed a hit music label into a consumer goods-and-services conglomerate. His privately held Virgin Group now wants to turn Greater China, Southeast Asia, and Australia into Virgin territory, with company-branded airlines, soft drinks, cellular-phone services, cosmetics, and radio stations all working to capture local customer loyalty. "We're committed to spending $2 billion over the next three years to build the brand [here]," says Andrew C. Craissati, Singapore-based chairman and CEO of Virgin Group Asia Pacific, who estimates that the region's share of Virgin's profits will grow from 5% to 30% by 2007.

Branson isn't just staking his own capital on this Asian adventure, however: He's getting local partners to pony up at least three-quarters of the money. On Mar. 12, Branson sold 50% of Virgin Blue to an Australian land-and-ship cargo company, Patrick Corp., for $138 million. That slug of fresh capital will fuel Virgin Blue's planned expansion from domestic Australian routes to New Zealand, Papua New Guinea, and Bali. It also will provide working capital as Virgin Blue drives to capture 50% of the Australian market, vs. 15% now.

Other people's money is a Branson trademark. First, he finds a promising consumer business that could get a boost from the Virgin name. Then his staff finds managers who know the nuts and bolts of an operation. The Virgin execs lay on the marketing (including those zany stunts) and brand-building, usually targeting youthful consumers with the promise of extra service and quality at a reasonable price.

The formula has worked in Europe, where Branson and his partners have built a chain of record stores, a cell-phone service, Virgin Atlantic Airways, even a passenger rail business. Branson doesn't lack for allies in Asia, either: Singapore Airlines already owns 49% of Virgin Atlantic, and Singapore Telecommunications has put up $450 million for a new mobile-phone venture that cost Virgin only $50 million in investment funds. Virgin Cosmetics is a new joint venture with Lux Asia, a Singapore importer. With shops in Singapore, Hong Kong, and Malaysia already, the two partners are looking for franchisees in other Asian cities. For its foray into radio, Virgin has agreed to market the stations of its Thai partner, BEC World, by attracting advertisers with promotions and giveaways. "We've come to the limit of what we can do ourselves," says Brian L. Marcar, managing director of BEC's radio subsidiary. "We're looking for Virgin expertise."

The Asian strategy is far from a sure thing, though, since many of these markets still are struggling to recover from the 1997-98 Asian crisis. And Virgin has had its share of missteps, including a failed attempt in the mid-1990s to open Virgin music stores in Hong Kong. In Australia, Virgin Blue faces a dogfight with dominant carrier Qantas Airways. The mobile business also needs help. As it has in Britain, Virgin is leasing cell-phone capacity from established local players and selling consumers on such perks as same-day delivery of replacement handsets. In Australia, Virgin has attracted 200,000 customers since launching its service in late 2000. But the Singapore operation, which started last October, has managed to draw just 20,000 users.

Craissati is undaunted. He says the Singapore business is improving, and the group will expand to Taiwan. That Virgin logo seems destined to be part of the Asian landscape.

By Bruce Einhorn and Frederik Balfour in Hong Kong, with Kerry Capell in London

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